29th Sep 2023

Russia now 'totally unsafe' for foreign firms, EU warns

  • Danone's Russian yoghurt business to be run by Chechen warlord's nephew (Photo: Mikel Lizarralde)
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Russia has become "totally unsafe" for foreign investors, the EU foreign service has warned in Europe's first reaction to the daylight robbery of Carlsberg and Danone.

"The presidential decree [on the asset-seizures] is yet another proof of Russia's disregard for international law and rules, this time by once again targeting the economic interests of foreign companies legitimately operating in Russia," EU foreign service spokesman Peter Stano told EUobserver on Wednesday (19 July).

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"With this Russia is not only looting in Ukraine, it is moving on to illegally depriving owners from the control over their assets on Russian territory," he added.

"The Russian presidential decree is also a very clear signal to any outside trade, business partners, or investors — if there are any left — about the state of the rule of law, economic and financial guarantees and safety of their assets in Russia, making it totally unsafe and unpredictable also in economic terms," Stano said.

The EU spoke out after Russian president Vladimir Putin suddenly nationalised the multi-billion euro assets of Danish brewer Carlsberg and French yoghurt-maker Danone last Sunday.

Putin also appointed Kremlin loyalists as new directors of the seized subsidiaries on Tuesday.

Carlsberg's breweries are to be run by 70-year old Taimuraz Bolloev, a businessman who is Putin's long-time friend, according to Spark-Interfax, a Russian corporate database.

Danone's yoghurt business is to be run by 34-year old Yakub Zakriev, who is Chechnya's agriculture minister and a nephew of Chechen warlord Ramzan Kadyrov, the Financial Times reported.

"The change to the management of Baltika Breweries has … been made without the knowledge or approval by Carlsberg Group," the Danish firm said on Wednesday.

"It is unclear to Carlsberg Group what implications this development will have on the ongoing operations of Baltika Breweries in Russia," it added.

Danone did not comment.

The move comes after Putin also seized the assets of Finnish and German firms Fortum and Uniper in April.

"Fortum considers Russia's actions to be a crude violation of international law and of Fortum's rights as a foreign investor," a spokeswoman told EUobserver on Tuesday, echoing the EU foreign service.

And with dozens of top EU companies still present in Russia despite the war, investors fear that Putin's redistribution of foreign treasure to his cronies is just beginning.

The list of potential targets includes some of Europe's biggest banks (Deutsche Bank, Raiffeisen Bank International, UniCredit) and energy firms (Engie, OMV, and Total).

It also includes well-known Italian fashion brands, such as Armani, Benetton, and Diesel, as well as Austrian energy-drink maker Red Bull, Dutch brewery Heineken, French cosmetics maker Clarins, and German engineering firm Bosch.

"Any Western firm operating in Russia can be put under state control. It will certainly raise concerns for the few remaining companies operating in Russia," said Filip Medunic, a Russia expert at the European Council for Foreign Relations, a think-tank.

Lukas Andriukaitis, a Russia expert at the Atlantic Council think-tank in the US, added: "This is a full-on nationalisation of foreign assets in a country whose economy is struggling and, at this point, slowly sinking".

EU foreign ministers meeting in Brussels on 20 July might discuss the developments.

"Russia/Ukraine will of course be discussed, but this specific point is not on the formal agenda. It can also be, however, that the affected countries [Denmark and France] raise this during discussions," an EU diplomat said.

The Danish and French foreign ministries did not reply to EUobserver.

Looming tax threat

Nationalisations aside, Moscow has also raised anxiety about higher taxes for foreign firms in future.

Most European firms have been paying next to no tax inside Russia on their profits there due to favourable double-taxation treaties.

But Russia's finance ministry, in March, proposed freezing such tax treaties with some 40 "unfriendly" countries that imposed sanctions on Russia, such as the 27 EU member states.

If Putin goes ahead, this could mean "a dividend tax even up to 25 percent," a Russian source told EUobserver in May.

"Putin's taxing them [European firms] for, outrageously, staying more loyal to him than to the EU would be another sign of his foolishness," said Jeff Sonnenfeld, a senior professor at the Yale School of Management in the US.

"I hope he does it," Sonnenfeld said.

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